Best Vanguard Funds for Retirement

Understanding the inner workings of your retirement account can help you develop a better approach to retirement savings and investment. Whether you're going for a 401(k) or individual retirement account (Traditional or Roth), you need to know how the various investment vehicles align with your long-term investment goals including the best Vanguard funds for retirement. 

With different options like stocks, bonds, exchange-traded funds (ETFs), index funds, real estate, cryptocurrencies, and many more available, knowing what fuels these options is key to realizing your investment goals.

The reason is that each of these investment options favors different investment strategies. Stocks, for instance, are best for investors looking to earn potentially more profit and are willing to take on more risk. In contrast, ETFs are best for investors with lower risk tolerance and more capital.

For investors looking to diversify their portfolios and spread out investment risk, mutual funds are the way to go. Mutual funds provide access to an extensive spectrum of investment options within and outside the U.S. 

As an investor looking to enjoy premium brokerage services at a low cost, Vanguard funds are undoubtedly the best choice.

Vanguard is the largest issuer of mutual funds globally. In the 401(k) retirement products section alone, Vanguard funds account for more than a third of the top 100 products. Ironically, Vanguard's long list of top-quality investment products can make choosing the right selection of funds for your retirement portfolio challenging.

Suppose you wonder which of Vanguard's extensive catalog of Vanguard funds is best for your retirement account. In that case, you needn't look far. Benzinga's guide will shed light on the best Vanguard funds suitable for driving your retirement account.

Best Overall: Vanguard Total Stock Market Index Fund Admiral Shares 

Vanguard's VTSAX fund is the largest mutual fund in the world. Its incredibly high exposure, low expense ratio and extensive diversification means it could be the best overall mutual fund for your retirement account. The portfolio provides diversified exposure to the entire U.S. stock market. The fund holds roughly 4,112 small-cap, mid-cap, large-cap and value growth stocks. For investors unable to commit the $3,000 minimum investment, Vanguard offers an ETF version of VTSAX called the Vanguard Total Stock Market ETF (NYSEARCA: VTI).

The assets held in VTSAX index stocks cut across several sectors that include technology (26.38%), consumer discretionary (14.77%), healthcare (13.27%), industrials (12.79%) and finance (11.09%) among the top five. Apple Inc. (NASDAQ: AAPL) makes up 5.85% of the holdings. Other major tech corporations in the top five are Microsoft Corp. (NASDAQ: MSFT), Amazon.com Inc. (NASDAQ: AMZN), Tesla Inc. (NASDAQ: TSLA) and Alphabet Inc. (NASDAQ: GOOGL).

Best for Diversified, Low-Cost, Low-Risk Investment: Vanguard 500 Index Fund Admiral Shares

Vanguard's VFIAX is closely related to its VTSAX investment fund. Like VTSAX, VFIAX charges a low expense ratio of 0.04% with a minimum investment requirement of $3,000. The two funds have the same characteristics but operate using different investment strategies. 

The VFIAX fund was designed to track the performance of the Standard & Poor's 500 (S&P 500) Index, which measures the investment return of large-cap stocks. The fund provides exposure to the stocks of the top 500 largest companies in the U.S., equivalent to approximately three-quarters of the total U.S. stock market's value.

For investors unable to commit the $3,000 minimum investment, Vanguard offers an ETF version of VTSAX called the Vanguard S&P 500 ETF (NYSEARCA: VOO).

VFIAX's top 10 assets holdings are similar to VTSAX's holdings (although they have different portfolio weights). Its passively managed, full replication approach and exposure to only large-cap stocks can make it the best fit for investors looking to invest long term while taking on as little risk as possible.

Best for Long-Term Growth Investment: Vanguard Balanced Index Fund Admiral Shares

The VBIAX fund includes stocks (60%) and bonds (40%). The equity portfolio (stocks) tracks the CRSP U.S. Total Market Index that houses all investable stocks in the U.S. stock market, including microcap, small, mid-cap and large-cap stocks. 

In contrast, the fixed-income portfolio (bond assets) tracks the Bloomberg Barclays U.S. Aggregate Float Adjusted Index, including fixed-income investment-grade security with over a year of maturities.

The mutual fund's underlying assets cut across various sectors, including technology (26.37%), consumer discretionary (14.76%) and healthcare (13.27%), among others. Its top 10 holdings are not very different from VTSAX and VFIAX except in portfolio weight. VBIAX 60/40 balanced portfolio split between stocks and bonds makes it a perfect fit for low-risk-tolerant retirement investors looking to diversify their retirement portfolio. When you invest in VBIAX, your portfolio is exposed to less risk and volatility. The bond assets help mitigate stock market volatility, which makes it ideal for long-term growth investment. 

Best for Dividend Payments: Vanguard Dividend Growth Fund

As the name suggests, the Vanguard Dividend Growth Fund is designed to return income through exposure to dividend-centric companies across all sectors. The fund targets high-quality, high-dividend-yielding companies committed to growing dividends in the long run.

The fund holds about 42 assets worth $53.2 billion across different holdings, including medium-cap, large-cap, dividend-paying U.S. stocks and a small number of foreign reserves. Stocks of companies in the industrial sector account for most of the fund portfolio (20.58%), followed by healthcare companies (19.32%), consumer staples companies (16.56%) and finance companies (8.84%).

Although VDGIX charges a relatively high expense ratio (0.27%), it provides a risk-averse way for investors to earn stable return on investment (ROI) on dividends without worrying about stagnation.

Best for Foreign Investment: Vanguard Developed Markets Index Fund Admiral Shares

The VTMGX fund allows retirement investors to invest outside the U.S. economy and its underlying market volatility. Suppose you are looking to increase your portfolio's international exposure. In that case, you should consider opting for the Vanguard Developed Markets Index fund. The fund comprises shares from companies located in Canada and major markets of Europe and the Pacific region. 

VTMGX holds about 4,123 holdings weighted at $154 billion across different sectors. Among the top five sectors include finance (18.35%), industrials (16.04%), consumer discretionary (23.03%), healthcare(11.05%) and technology (8.89%). Some of the top companies held in the fund are Nestle SA ((OTCMKTS: NSRGY), Roche Holding AG (OTCMKTS: RHHBY), Samsung Electronics Co. (KRX: 005930), ASML Holding NV (NASDAQ: ASML) and Toyota Motor Corp. (TYO: 7203).

Investing in VTGMX exposes you to certain existential risks otherwise non-existent within the U.S. economy space. Because of the fund's international nature, you are exposed to currency risk. Nevertheless, the fund's investment strategy can provide substantial security, especially during inflation or U.S. dollar underperformance.

Features to Look for in Vanguard Funds

Regardless of your investment strategies, certain core features will help you make a more informed choice when choosing a Vanguard fund for your retirement investing. Some of these features include the following.

Diversified asset mix

A fund's asset mix is a breakdown of all its assets. The assets may include stocks, bonds, cash or real estate. 

The breakdown tells you the composition of a fund portfolio. A diversified asset mix helps you avoid putting all your eggs in one basket. It marginally reduces the risk of investing. Therefore, while choosing Vanguard funds for your retirement investing, you need to take note of the fund's asset mix. The more diversified the asset mix is, the better.

Expense ratio

The expense ratio refers to how much you'll pay for professional management annually while holding mutual funds and ETFs. The expense ratio represents the annual cost of owning each fund or ETF. The expense ratio is usually charged as a percentage of the assets managed. 

For instance, say you invested $4,000 in VTSAX, which has an expense ratio of 0.04%, your charges for the year will be $1.60 (0.0004 * $4,000). So for every $4,000 you invested, you'll pay $1.60 annually. Although this looks small, it becomes significant if you do the math for an expense ratio of 1.5% and compound it for 30 years. You don't want to invest in a fund with a high expense ratio, as this will reduce your earnings.

Performance history

While a fund's good historical performance doesn't necessarily equate to a bright future ahead, it ultimately provides you insight into how the fund behaves under normal market conditions and otherwise. 

When choosing Vanguard funds, endeavor to check the historic performance breakdown. Some funds return a profit in the short term, some in the medium term, and others could be long-term. Depending on your investment goals, you can then narrow down your choice.

How to Buy into Vanguard Funds for your Retirement Account

Now that you have a comprehensive knowledge of the core features to look out for in a target fund, let's review how to buy Vanguard funds. Here's a step-by-step guide for you.

Choose your Vanguard fund

It is bad practice and unadvisable to dive into investing headfirst without researching. You can choose from a lot of Vanguard funds, but you should research each first. That way, you're in a better position to make a choice. An intelligent approach is to choose a fund that aligns with your investment goals and has all the features of a good Vanguard fund.

Open a Vanguard account 

Once you've chosen a fund, the next step is to open an account with Vanguard. Head to Vanguard's official website, navigate to the account sign-up page, choose the type of account you want to open and go from there. Vanguard does not charge application fees for account opening.

Link your bank account

After you've opened an account, you'll have to link your bank account to your Vanguard profile to facilitate transactions. Fill in your requisite details (bank account number, bank unique routing number and bank account type) on the account integration page.

Vanguard will immediately try to verify the bank account information you've provided. You'll receive two deposits from Vanguard, both less than $1. Vanguard will require you to enter the amount you received in cents to confirm your bank details. The process could take some time to conclude.

Request a buy

Once your bank details have been confirmed, you're ready to buy your funds. If this is your first Vanguard index purchase, navigate to the "Add another Vanguard mutual fund" tab, then enter the ticker name or the fund symbol. You'll be directed to the buy page.

If you aren't a first-timer, navigate to the "Buy and Sell" option and click "Buy Vanguard Funds." You'll be redirected to the buying page, where you can choose the fund you want to buy. Enter your deposit in dollars, then click continue. 

Subsequently, you only need to click on your bank account information from the dropdown funding selection to complete the buying process. Click continue, then initiate the buy.

How you can Improve Your Finances

Financial stability is fundamental to a good life. It is the key to unlocking financial opportunities both at home and abroad. Being intentional about improving your financial situation is crucial to financial stability. Although this knowledge is no news, making a conscious effort to improve your financial situation can be challenging if you lack discipline. Here are some ways you can consciously improve your financial situation.

Budgeting

A budget is a blueprint for responsible spending. As an income and expenditure tool, it is a surefire way to improve your finances. Through budgeting, you define your financial priorities and weed out the non-essentials. Subsequently, you can better allocate your resources accordingly.

However, mere budgeting isn't enough. You need adequate self-discipline to follow your budget allocations and remain on track. When you're disciplined enough to stick to your budget, it becomes easy to reroute money into savings, investing, and other value-added expenses.

Pay off your debt

If you want to transform your finances to live your dream life, debt servicing and paying the monthly minimum won't cut it. Being a debtor is expensive. 

And when you focus on paying the monthly minimum, it can lead to a vicious cycle of debt servicing that won't stop. So try to pay off all your debts when you can. A good strategy would be to divert your non-essential expenses into debt payments.

Saving 

Savings is age-old wisdom that has been passed down over the years. You've probably heard about the importance of savings in your financial life. Well, savings is everything you've been told and much more. It is your insurance — a free ticket to financial freedom as long as you can exploit the opportunity. The amount you save doesn't matter as long as you do it regularly. Over time, it'll amount to significant returns.

Investing

Investing is another excellent approach toward improving your finance and fast-tracking your financial stability. Actually, both savings and investment are two contrasting approaches to financial improvement. When you save, you're exposed to virtually no risk; in contrast, investing exposes you to considerable risk. However, with these risks comes the potential for a greater return, unlike savings. An efficient approach will be to create a balance between savings and investing. 

You can access many investment options and opportunities in the open market — these range from traditional options like stocks and ETFs to non-traditional assets like cryptocurrencies and real estate.

Each of these financial instruments has its strengths and weaknesses. As you explore these investment options, remember that every investment opportunity has a commensurate level of risk attached. Never invest what you can't afford to lose.

Frequently Asked Questions